The student debt problem in America is increasingly a graduate student debt problem. Consider:

1. In 2015-2016, graduate students, including those pursuing professional degrees, accounted for about 38 percent of all federal student debt — even though just 17 percent of students are in this category.
2. Annual borrowing by graduate students is, on average, more than three times higher than that of undergraduate students. It’s “only” about $5,500 per year for undergraduates versus north of $18,000 per year for graduate students. That’s per year. In each case, the median is lower — the high fliers pull up the average.
3. But the percentage of graduate students borrowing at least $75,000 more than doubled between 2008 and 2012. In 2012, one-quarter of graduate students borrowed nearly $100,000, and another 1 in 10 borrowed more than $150,000.
4. Overall college enrollment is down in recent years. But graduate enrollment is up.

Borrowing for Graduate School is Different

Undergraduate students have borrowing limits, at least if they want cash from Uncle Sam. No more than $5,500 the first year, $6,500 the second year, and $7,500 the remaining years, with an overall cap of $31,000 for dependent students. As I argued here, that really ought to be enough. If it isn’t, you’re doing it wrong.

With graduate school, you can get $20,500 per year, with a maximum lifetime limit of $138,500. These loans all come from the same program. This year they have a fixed interest rate of 4.45 percent.

Again, in most cases, this should be enough borrowing. But what if you want more? The government has another program called Grad PLUS. It will let you borrow anything extra that you need, up to the full cost determined by your university. That’s everything: Whatever the school charges for tuition and fees, plus an allowance for living costs and books. Not surprisingly, grad school borrowing has increased at a faster rate than undergraduate borrowing.

In fact, a recent study shows that grad students use Grad PLUS loans even when they could get a lower interest rate from a private lender. Why would they do that? Because federal loans qualify for the income-based repayment program (IBR). This program allows borrowers to make payments at 10-15 percent of their income for 10-20 years, after which the remaining balance is forgiven — no matter the size of this balance. You could have $15,000 left or $150,000 left. It doesn’t matter. The entire remaining balance is forgiven.

But as Jason Desisle points out, grad students are great candidates for private loans in ways that undergraduate students are not. Grad students already have a degree, are no longer dependents of their parents, and can establish earnings and credit histories before borrowing.

Private lenders have an advantage in that they can be responsive to market forces. For example, private lenders could set different interest rates, say, for engineering students versus philosophy students, or for students at top-tier programs versus less reputable programs. In disciplines like business, engineering, and medicine, the return on investment from graduate school is fairly immediate and strong. But in other fields, that’s not the case. A study released this year by the American Enterprise Institute finds master’s degrees in philosophy, art, and early childhood education have median earnings that are often lower than graduates with bachelor’s or even associate degrees in higher paying disciplines.

This isn’t to denigrate the lower paying fields. In God’s eyes, if your work benefits others, it’s useful and therefore dignified — whatever your pay. Still, it’s unwise to borrow a lot if you want the freedom to not earn a high salary. And it’s unloving to others, who will be left to pick up the bill. Similarly, a policy that tacks on north of a $100 billion to the federal debt is not loving to the next generation.

A counter-argument is that graduate students with high loan balances rarely default. That’s true. But more is at stake when they do default. As Preston Cooper observes, “While just 5 percent of borrowers in default owe more than $50,000, these borrowers also owe over 25 percent of the dollars in default.” Whose loses when this happens? The former graduate students, whose credit score is ruined, and the rest of us, who foot the bill.

Sensible Reforms 

Surely we should cap Grad PLUS loans, as we do other federal student loans. If an aspiring doctor or lawyer wants to borrow more, they’re better served by the private sector, which will more carefully scrutinize their future earnings prospects. And lenders could compete for their business.

If I want a Ph.D. in literature, art, or philosophy, fine. But how much should the government be prepared to lose in the process? Should I really be allowed to pay just 10 percent of my salary towards my debt for as few as 10 years, and no more than 20 years, leaving the taxpayers to absorb the rest?

President Trump has proposed that we cap repayment at 12.5 percent of discretionary income and forgive the rest of federal student loan debt after 15 years for undergraduate borrowing and after 30 years for graduate borrowing. The latter tend to earn more over time — it’s only fair to make them pay more of it back.

We currently have a confusing variety of income-based repayment programs, and getting into them can be complicated (leading to needless defaults). Simplicity here is better — and you could still choose the traditional 10-year repayment plan.

Dr. Alex Chediak (Ph.D., U.C. Berkeley) is a professor and the author of Thriving at College (Tyndale House, 2011), a roadmap for how students can best navigate the challenges of their college years. His latest book is Beating the College Debt Trap. Learn more about him at www.alexchediak.com or follow him on Twitter (@chediak).